Perry Proposes 20% Flat Tax for Individuals, Companies

Published 2:49 am, Wednesday, November 30, 2011

(Updates with quotes in sixth paragraph, retirement plan details in eighth paragraph. For more campaign news, see ELECT.)

Oct. 25 (Bloomberg) -- Republican presidential candidate Rick Perry proposed a tax overhaul that would cut corporate rates and give individuals the option of paying a 20 percent flat tax on their income, fleshing out an economic plan he is using to try to distinguish himself from his rivals.

"Taxes will be cut across all income groups in America," Perry said. He displayed an individual income tax form not much larger than a postcard that he said taxpayers could use, as he detailed his ideas in a speech today in South Carolina.

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"The net benefit will be more money in Americans' pockets, with greater investment in the private economy instead of the federal government," said the Texas governor, who chose the warehouse floor of ISO Poly Films, a plastics company in Gray Court, about 25 miles from Greenville, as his backdrop.

The proposal would lower the corporate tax rate to 20 percent from 35 percent and give multinational companies a temporary incentive to bring home foreign-earned income at a far lower rate of 5.25 percent.

Seeking to recapture momentum for his 2012 bid, Perry is trying to harness Americans' distaste for the complicated tax code and capitalize on enthusiasm -- evident in Herman Cain's surge in the polls as he promotes his 9-9-9 tax plan -- for major changes, particularly among the anti-government Tea Party movement.

Americans "aren't searching for a reshuffling of the status quo, which simply empowers the entrenched interests," Perry said. "This is a change election, and I offer a plan that changes the way that Washington does business."

Perry's plan calls for balancing the budget by 2020 and capping federal spending at 18 percent of gross domestic product. It includes changes to popular social programs that he said would end the "entitlement culture" in America and do away with what he called the "nanny state."

Those include raising the age at which future senior citizens become eligible for Social Security and Medicare; limiting future retirement benefits for younger people and letting them invest part of their payroll taxes in private accounts; and requiring wealthier seniors to pay more for Medicare services. Perry said state and local governments should be able to opt out of Social Security and let workers invest instead in state and local retirement programs.

10 Weeks to Iowa

Perry is seeking to recharge his campaign, which surged after he entered the race Aug. 13 yet lost steam following lackluster debate performances and scrutiny of his backing for a Texas law that allows the children of illegal immigrants to pay in-state tuition at state universities. Perry this week added campaign veterans and scheduled his first major ads in Iowa, with 10 weeks to go before voting begins there.

Still, Perry may have undermined his effort to focus on his policy ideas when he said in a CNBC interview today he would continue to question the authenticity of President Barack Obama's birth certificate, an issue raised by some social conservatives who say Obama isn't eligible to be president. In April, Obama released his birth certificate, issued by the state of Hawaii, which shows his birthplace as Honolulu.

"It's a good issue to keep alive," Perry told CNBC. "It's fun to poke him a little bit," he said of Obama, adding that while the issue is a "great distraction," he is "not distracted by it."

Differences with Romney

Perry's economic plan sets him apart from Mitt Romney, the former Massachusetts governor and second-time presidential candidate who is leading in Republican primary polls. Romney last month released a 59-point, 160-page jobs proposal that keeps the existing tax system while extending income tax cuts now set to expire and reducing investment taxes and the corporate rate.

Perry invited people to look at his own plan and said, "It is not the length of the novel War and Peace, by the way." Other candidates, he said, were offering "microwave plans with warmed-over reforms based on the current ingredients."

Obama's campaign criticized both men's plans as extreme ideas that wouldn't create jobs. Romney's and Perry's proposals "would shift a greater share of taxes away from large corporations and the wealthiest onto the backs of the middle class," Ben LaBolt, the campaign's press secretary, said in a statement. "The belief that middle class Americans will benefit if we just give another special break to those at the top was long ago discredited."

Less Progressive

A flat tax -- even an optional one -- by definition would be less progressive than the current system, where the top individual income and corporate tax rates are 35 percent. The highest earners currently pay a higher percentage of taxes while those who earn less owe a lower percentage, with the lowest earners paying no income taxes.

In the CNBC interview, Perry said he doesn't believe the country should have a progressive tax system and isn't worried about being accused of giving massive tax breaks to the wealthy.

"When the federal government tries to take too much, they end up hurting the very people they supposedly seek to help: the working class," Perry said in his speech. "We need tax policy that embraces the world as it is, not as some liberal ideologue wishes it to be."

Under his plan, individuals could continue under the current system or opt for a 20 percent tax on income. It would preserve popular deductions, including those for mortgage interest and charitable contributions, and exempt $12,500 for each individual and dependent. The plan also would eliminate taxes on Social Security benefits, inheritances, dividends and long-term capital gains.

Help From Forbes

Perry drafted his proposal with help from Steve Forbes, who proposed a flat tax when he ran for the Republican presidential nomination in 1996 and 2000 and has endorsed the Texan's candidacy. At the time, he was criticized by Republican primary rival Pat Buchanan for a proposal Buchanan said seemed to have been drafted at a yacht club, and by Romney for pitching "a tax cut for fat cats."

Asked about the criticism, Perry told CNBC of Romney: "I consider him to be a fat cat."